Bund Yields Reach One-Week High After Retail Sales, Service Data

Germany’s 10-year bond yields reached the highest level in a week as reports showed euro-area retail sales and services output exceeded economists’ forecasts, damping demand for the safest assets.

Portuguese bonds rallied before the government presents a review of its aid program today. French 10-year bonds fell for a third day after the country auctioned 7.46 billion euros ($10.2 billion) of debt maturing in 2023 and 2029, while Spain’s securities erased losses after it sold five- and 10-year debt. Investors are weighing whether a partial shutdown of the U.S. government will merge with a debate over raising the nation’s debt ceiling.

“There’s a general climate of slightly stronger European data that’s weighing on bunds,” said Mathias Van Der Jeugt, a fixed-income strategist at KBC Bank NV in Brussels. “The selloff is quite limited and we expect core bonds to remain supported by the ongoing U.S. fiscal situation. Supply from Spain was well digested.”

Germany’s benchmark 10-year bund yield was little changed at 1.81 percent at 4:20 p.m. London time after rising to 1.85 percent, the highest level since Sept. 25. The price of the 2 percent security due in August 2023 was 101.715.

Euro-area retail sales increased 0.7 percent in August after climbing a revised 0.5 percent in July, the European Union’s statistics office said. Economists surveyed by Bloomberg forecast a gain of 0.2 percent. An index of service activity climbed to 52.2 last month, Markit Economics said, exceeding the median estimate of 52.1 in a separate survey.

Portugal Review

Portugal’s 10-year yield dropped the most in two months before the government presents the reviews of the country’s financial aid program at 6 p.m. in Lisbon.

The yield on the securities fell 17 basis points to 6.61 percent, the biggest decline since July 22.

Volatility on Portuguese bonds was the highest in euro-area markets today, followed by those of Finland and Belgium, according to measures of 10-year debt, the yield spread between two- and 10-year securities, and credit-default swaps.

France sold 5.11 billion euros of debt due in May 2023 at yield of 2.37 percent and 2.36 billion euros of securities maturing in April 2029 at 3.02 percent.

French 10-year yields climbed one basis point, or 0.01 percentage point, to 2.36 percent after increasing as much as four basis points.

Spain Auction

Spain auctioned securities due in October 2023 at an average yield of 4.269 percent, the lowest level at a sale of 10-year debt since September 2010. It also sold notes maturing in January 2018 and October 2018.

The yield on Spanish 10-year bonds was little changed at 4.25 percent after climbing as much as six basis points.

Italy’s bonds were little changed after advancing yesterday when Prime Minister Enrico Letta won a confidence vote in the Senate, avoiding the need for another election.

“We’ve had an easing of political pressure for Italy, which can only be of help for risk sentiment,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The level of yields seems to be in line with what we’re seeing in terms of easing political risk.”

The 10-year Italian yield was at 4.37 percent after dropping five basis points yesterday.

German bunds lost 1.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Spain’s bonds returned 9.5 percent and Italy’s advanced 4.8 percent.

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